The Central Bank and the Ministry of Finance are fighting for the ruble: different views on currency regulation

The Bank of Russia and the Ministry of Finance are seeking consensus on the issue of currency control. The department of Anton Siluanov takes a conservative position, and the regulator is more liberal. The Minister of Finance himself announced this at a press conference on September 1. Disagreements between “the powerful of the world today” do not frighten, the parties are confident in the success of their efforts, because, as Siluanov emphasized, “he who seeks will always find.” Why the views of departments on currency regulation diverged and how this situation may affect the ruble exchange rate, “MK” found out from experts.

According to Siluanov, earlier the Central Bank strongly defended currency control. “The Ministry of Finance was more liberal,” the finance minister said. — Now everything has changed: we are in favor of tougher measures regarding the control of flows, since the situation is known (weakening of the ruble — ed.). The Central Bank, on the contrary, has taken a liberal position here. It’s OK. Anyway, I’m sure we’ll find a joint solution and get closer.”

The head of the Bank of Russia, Elvira Nabiullina, believes that only “mirror” currency control measures should be maintained, and currency restrictions should not create difficulties for participants in foreign economic activity (FEA). She added that today many market participants fear an increase in capital outflow against the backdrop of easing foreign exchange controls (which will lead to a depreciation of the ruble – ed.). But the outflow must be fought with other tools, the head of the Central Bank of the Russian Federation is sure. “The outflow of capital is a preference for the currency, because it is not only an outflow abroad, but when foreign currency deposits grow within the system, this also enters the financial account. This is a preference for ruble assets, and is treated by completely different methods, including the key rate,” Nabiullina emphasized.

The process of liberalization is the removal of restrictions on foreign exchange transactions between Russian foreign exchange residents and non-residents. “In carrying out liberalization, the interests of society and the state should be taken into account in terms of national security and welfare,” says investment adviser Yulia Kuznetsova. – At this point in time, the President of the Russian Federation Vladimir Putin partially canceled the decree of February 2022 by the law on foreign exchange earnings. And if earlier it was necessary to credit the proceeds to accounts in Russian banks, now the head of state has allowed it to be credited to the accounts of Russian suppliers abroad.” The Ministry of Finance is now advocating tougher measures to control flows as the ruble has weakened a lot.

“I would rather say that Russian financial regulators have a different approach to tools, that is, both departments are interested in strengthening the ruble, because they see the negative effect of its devaluation, which manifests itself in different sectors of the economy,” Maxim Fedorov, Investment Advisor at Fontvielle Investment Company, continues the conversation. . “However, views on exactly how to stabilize the exchange rate vary.” The Bank of Russia draws attention to the fact that the key rate has a complex effect on the economy, including the foreign exchange market, but with a certain time lag. This happens through a complex chain: the cooling of the lending sector leads to a decrease in business and consumer activity, and this is followed by the stabilization of export-import trade and the support of the ruble. Representatives of the Ministry of Finance are afraid that until the effect of the change in the key rate reaches the Russian currency, the ruble will weaken too much, because the results of the actions of the Central Bank of the Russian Federation are usually felt with a lag of 3-6 months.

As an effective short-term support measure, the Ministry of Finance is counting on the sale of foreign exchange earnings by exporters. This is what the August government meetings were devoted to. In 2022, this measure, along with a number of others, turned out to be very effective. However, one should not forget about the departure of exporting companies from unfriendly dollars and euros in the direction of friendly currencies and rubles in mutual settlements. The structure of export earnings has changed over this time, so this measure may not work as effectively as last year, the Central Bank believes.

Recall that earlier there were rumors that the accumulated revenue of Russian exporting companies worth billions of dollars, which could save the ruble from a collapse this summer, was stuck in India. In addition, rumors are also actively discussed in social networks that part of Russian oil is paid for in rupees, which cannot be used to buy anything. In part, these fears are confirmed by the statements of officials. So, at the end of August, in an article by the chairman of the board of FC Otkritie Bank, ex-Minister of Finance Mikhail Zadornov, it is directly stated that Russia supplied oil and oil products to India in the first half of the year for $30 billion, and domestic imports from India are estimated at about $6–7 billion a year. “We have nothing to buy in India, but we cannot return these rupees, since the rupee is an inconvertible currency,” he said in the publication. Russia’s difficulties with the “stuck” of another currency in India are also connected with sanctions against the banking sector of our country: cross-border transfers are difficult due to restrictions and no one is going to remove them in the future.

“In favor of a market-driven exchange rate, the Central Bank of the Russian Federation traditionally does not welcome administrative measures of influence and resorts to such tools only in exceptional cases to maintain financial stability, for example, currency restrictions from the spring of 2022,” says the head of the analysis department for banks and the money market of the Investment Company “ VELES Capital Yuriy Kravchenko. – In the current situation, the Central Bank probably does not see serious risks to financial stability, but it understands all the pro-inflationary risks due to the weakening of the ruble. Currency controls, administrative measures for exporters, etc. in the short term, they can affect the exchange rate, but will not change the situation at the system level. Therefore, the regulator is trying to influence the market situation and inflation exclusively by systemic measures of monetary policy.”

According to Dmitry Aleksandrov, head of the analytical research department at IVA Partners Investment Company, the ruble exchange rate may strengthen if there are corresponding changes in capital flows – it is necessary to increase inflow and reduce outflow, and an increase in inflow may be more important here. And attempts to limit the outflow, if they are rude, can only increase it. At the same time, if the regulators fail to agree or do nothing, then experts are sure that the Russians will see the dollar again at 100 rubles in September.